1. 37 th National Convention of Company Secretaries, Hyderabad SESSION : LEAD THE MARKET UNDER COMPETITION REGIME TOPIC: MERGERS UNDER NEW COMPETIOTION REGIME G R Bhatia Partner Luthra & Luthra Law Offices 07.11.2009

2. 2 Competition Act, 2002 The trident enforcement/regulatory dimensions of the Act are: 1. Anti-competitive agreements; 2.Abuse of dominance; and 3.Regulation of Combinations. The first two areas are prohibited ex post while the regulation of merger is generally ex-ante. The other two dimensions are : Rendering of opinion; and Undertaking competition advocacy

3. 3 Dimensions of law-intertwined THE COMPETITION ACT, 2002  All the dimensions of law are inter-twined  Integration of function/structure,  Combination includes acquisition, merger, amalgamation and joint venture.  Acquisition/Merger/Amalgamation/Cartel

4. 4 Rationale for Regulation of Combinations  Better to prevent firms from gaining anticompetitive market power than to control such market power after its creation.  Easier to deal with ex ante merger.  Structural remedy post merger is as formidable as ‘to unscramble an omelette and turn it back to egg’,  combination regulation is forward looking.  Certainty is preferable than later on hassles.

5. 5 Remedies with CCI :  Approve/ block the combination  Approve modification, - Divestment of some assets or business - Requiring access to essential inputs/facilities - Dismantling exclusive distribution agreements - Removing non-compete clauses - Imposing price caps or other restraints on prices - Refrain from conduct inhibiting entry of others

6. 6 Other laws/bodies regulating mergers  Companies Act, 1956  Sick Industrial Companies (Special Provisions) Act, 1985  SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 1997  Regulatory Authorities also regulate mergers

7. 7 Horizontal & Vertical Combinations Raw Material Supplier Manufacturer Retailer Wholesaler Retailer

8. 8 Motivation for Combinations  To diversify to reduce business risks;  To achieve optimum size to reap the benefits of scale;  To reduce duplicate expenses to improve the profitability;  To serve the customer better;  To have cohesiveness in control  To grow without gestation period;  Inorganic growth is believed to be much faster compared to organic growth

9. 9 Adverse Effects of Combinations  Horizontal merger reduces number of players  Market share post merger goes up;  Embracing unhealthy reduces the tax liability  Rivalry in firms is friendly to consumers;  Mergers often fails to harmonize human relation.  Unilateral/Coordinated effects

10. 10 Case Law-from competition l perspectives & facts Volvo/Scania (2000) IBM/SBCS (2004)  In the first 6 months of 2009: Indian Companies were involved in 136 transactions: 34 inbound deals – 31 outbound targets. *Venture Capital.  In 2008: China ranked first (1539 deals) and India ranked third (536 deals). China ranked first in terms of transaction value ($59.24 Billion) as well as in terms of number of transactions (1539 deals)  India is ranked third with 536 deals worth $23.01 Billion. * Source – BW – Thomson Reuters M&A Deal Tracker.

11. 11 The Competition Act, 2002  The Act provides for ex ante regulation of certain combinations.  Mandatory Pre-Notification - Failure attracts penalty  Suspensive Jurisdiction  Filing triggered when aggregate exceeds prescribed value of assets or turnover.  Caliberated thresholds when parties have ‘operations in India or outside’ or belong to a ‘group.’

12. 12 Triggering Limits Operations of Combining Parties Combining PartiesGroup to which Combining Parties (post merger) belong. In India Total value of assets > Rs.1000/-crores or turnover Rs.3000/- crores. Total value of assets of more than Rs.4000/- crores or turnover of more than Rs.12000/- crores In India or Outside Aggregate value of assets > $500 mn (incldg. at least in India Rs.500 crores or turnover > $1500 mn (incldg. at least turnover of Rs.1500 crores in India). Aggregate value of assets of more than $2 bn (incldg. at least assets of Rs.500 crores in India) or turnover of $6 bn (incldg. Rs.1500 crores turnover in India.

13. 13 Contd ….  Filing of notice & review thereof- 2 phases;  Comprehensive definition of ‘group’ and ‘control’  To be governed by the CCI (Combination) Regulations, 200_which are being fine tuned;  Acquisition -PFIs, banks, FIIs & VCFs not covered- need to notify;

14. 14 The Proposed Competition Commission of India (Combination) Regulations, 200_  Some transactions are proposed to be exempted – as not causing aaec,  Option to file short / long form with varying initial review period,  Details of parties/nature & purpose/products and market share/intended structure or control, distribution facilities, Multi-Jurisdictional Filings/Rulings  Filing Fees of Notice –Rs. 40 lakhs  Opportunity of being heard to an objector

15. 15 Inquiry by the CCI  The CCI shall inquire into whether a combination is likely to cause an appreciable adverse effect on competition.  CCI to consider-  extent of imports, barrier to entry, innovation, substitutes;  level of combination, countervailing power,  likelihood of increase in price or profits, removal of effective competitor,  falling business, contribution to economic development, balancing pros and cons.

16. 16 Take away  CCI to issue Guidelines with Helpline Manual  Need for multi phase filing;  Need to omit Section 108A to H of the Companies Act, 1956;  Treatment of subsidy, aid and taxes in determining ‘turnover’,  Turnover in different service sectors to be clarified  PSUs to be treated on stand alone basis and not as same ‘group’  Encouragement to parties to inform changes  Provide for preliminary conference;  Review of threshold limits/indexation/conversion

17. 17 Role of Company Secretary  Pre merger,  Filings of notice,  Coordination with other Authorities-High Court- SEBI,  Coordination with other Regulators,  Coordination in multi jurisdictional filings,  During the review of the notice by the CCI,  Post merger

18. Thank You G R Bhatia gbhatia@luthra.com +91 11 4121 5100 9818196048